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Postal Ballot Vs Meeting?

Published on Sun, May 25,2014 | 00:22, Updated at Tue, May 27 at 18:20Source : CNBC-TV18 |   Watch Video :

It is the first judicial decision on the Companies Act 2013 and it goes in favor of shareholder rights and corporate democracy. Earlier this year Godrej Industries decided to merge with group company Wadala Commodities. In April it approached the Bombay High Court asking for permission to dispense with the court convened shareholder meeting in favor of a postal ballot and e-voting.

The Godrej petition relied on Section 110 of the Companies Act, 2013 which says a company may in respect of any item of business other than ordinary business and any business in respect of which the directors or the auditors have a right to be heard at any meeting transact by means of postal ballot instead of transacting such business at a general meeting.

POSTAL BALLOT vs MEETING
Companies Act, 2013
Section 110. (1) Notwithstanding anything contained in this Act, a company -
(b) may, in respect of any item of business, other than ordinary business and any business in respect of which directors or auditors have a right to be heard at any meeting, transact by means of postal ballot… instead of transacting such business at a general meeting.

The Bombay High Court was though not very pleased with this petition. It said in a judgment that the shareholder has an inalienable right to ask questions, seek clarifications and receive responses before he decides which way he will vote. The right to persuade and the right to be persuaded are as I see it, of vital importance. In an effort for greater inclusiveness, these rights cannot be altogether defenestrated. To say, therefore, no meeting is required and that the shareholders must cast his vote only on the basis of the information that has been sent to him by post of e-mail seems to me to be completely contrary to the legislative intent and spirit to the express terms of the SEBI circular and amended Listing Agreement's Clauses 35B and 49.'

POSTAL BALLOT vs MEETING
Bombay HC: Godrej Ind. Case
‘…the shareholder has an inalienable right to ask questions, seek clarifications and receive responses before he decides which way he will vote…The right to persuade and the right to be persuaded are, as I see it, of vital importance. In an effort for greater inclusiveness, these rights cannot be altogether defenestrated. To say, therefore, that no meeting is required and that the shareholder must cast his vote only on the basis of the information that has been send to him by post or email seems to me to be completely contrary to the legislative intent and spirit to the express terms of the SEBI circular and amended Listing Agreement’s Clauses 35B and 49.’

With those words Justice Gautam Patel of the Bombay High Court put an end to the practice of companies seeking to dispense with court-convened shareholder meetings and obtaining shareholder approval via postal ballots and e-voting.

He relied on a technicality to make that ultimate decision but there's no denying the order is eloquently in favour of shareholder democracy! Well, that’s the short version but for the long version that is the impact of the decision on corporate India I am joined by Sanjay Asher of Crawford Bayley and Sharad Abhyankar of Khaitan & Co.

Doshi: I am going to start by pointing out that Section 110 of this new Companies Act is very closely modeled on Section 192A of the 1956 Act and here is what Section 192A says in brief that a listed public company may get any resolution passed by means of a postal ballot instead of transacting the business in a general meeting of the company.

POSTAL BALLOT vs MEETING
Companies Act, 1956
Section 192A. Passing Of Resolutions By Postal Ballot
(1) Notwithstanding anything contained in the foregoing provisions of this Act, a listed public company may, and in the  case of resolutions relating to such business as the Central Government may, by notification, declare to be conducted only by postal ballot, shall, get any resolution passed by means of a postal ballot, instead of transacting the business in general meeting of the company.

Explanation. - For the purposes of this section, "postal ballot" includes voting by electronic mode.

Doshi: Now, has that been a history Sanjay of companies approaching the courts successfully to dispense with shareholder meetings and even court convened meetings in order to be able to get shareholder approval only via a postal ballot and e-voting?

Asher: First of all let’s look at the provisions of law. The law does not compel you to have a meeting; it only says that the court may direct the meeting to be held and this provisions you have to read with the company court rules where there are provisions for the purpose of dispensation for the meetings as well. For example, if you have no objection certificate from 3/4th in value representing majority in number or some court insists on 90 percent, some court insists on 100 percent in which event the court dispenses with the meeting completely. Now, what is the no objection certificate? It is another form of postal ballot.

Doshi: I looked up when I found one; ITC was in the earlier part of this year in February So, are you saying that in your experience because you’re combined experience pans most of corporate India that several listed companies have sort to dispense with the shareholder meeting and attempted to get an approval via a postal ballot? Has that been the case in different high courts across the country? Would you say that confidently?

Abhyankar: I don’t think it would be several. It could be probably just a handful.

Doshi: But there have been instance of this? Therefore Godrej must have thought that if people could do under 192A of the earlier Act, then why not do it under 110.

Abhyankar: The only thing is that most of the applications that have come before the courts are at complete dispensation of meetings on the basis of consensus obtained even before such an application has been made.  

Doshi: So those are the no objection certificates that Sanjay is referring to?

Abhyankar: It is not doing the voting through an alternative means but a complete dispensation of meetings altogether.

Doshi: For instance, the ITC case from earlier this year, there was no objection certificate (NOC) involved from what I could read of either the petition or the decision.

POSTAL BALLOT vs MEETING
Calcutta HC: ITC Petition
Resolution of Scheme of Arrangement between Wimco & ITC
To be put to vote by postal ballot/e-voting
If requisite majority received
Shall be deemed to have been duly passed at a meeting u/s 391

Abhyankar: In Bharti Airtel as well, meetings of the creditors were held. The only mechanism they were directed to do is to obtain Bharti Airtel’s shareholders consent by means of a postal ballot. So, that happened in 2006.

Doshi: So as far back as 2006 they did away with the court convened shareholder meeting and that they did under Section 192A, right?

Abhyankar: That they did under actually a discretionary power under 391-394

Doshi: What I am trying to understand is that is there any difference between what 192A allowed you to do and what 110 allows you to do because 110 is new. The only difference that I could find is 192 very clearly referred to listed companies and 110 refers to all companies it doesn’t distinguish between listed and unlisted. Do you see any difference in the application of the two?

Asher: That’s right. Nothing at all.

Abhyankar: You should look at also the history of where postal ballot came in from. The parliamentary committee; the standing committee on Companies Amendment Bill 1997 had actually proposed postal ballot. The Department of Company Affairs, working group on Companies Act had a very interesting observation to say that no we are not yet mature enough possibly, the system is not good enough.

Doshi: That’s in the past. What I am trying to understand is does the law allow you to do what you have attempted to do in the Godrej case and if yes then why was justice Patel so enraged by the effort of a company to do this? That was my question.

Abhyankar: I clearly see a missing link between the manner of voting or participation of shareholders in deciding the vote of the company as such and substituting that for a meeting and that’s why we should have some lessons from the history because the e-voting or postal ballot were never considered to be substitutes of physical meeting.

Doshi: So they were never meant to be in lieu of the meeting. They were supposed to be in addition.

Abhyankar: In lieu of meeting - that wording intend somewhere that postal ballot is substitutable. SEBI always thought postal ballot was an additional mechanism of voting rather than substituting a meeting.

POSTAL BALLOT vs MEETING
SEBI Circular, May 2013
5.16 (a) Listed companies shall ensure that the Scheme submitted with the Hon’ble High Court for sanction, provides for voting by public shareholders through postal ballot and e-voting…

i. Where additional shares have been allotted to Promoter*
ii. Where the Scheme involves the listed company and any other entity involving Promoter*
iii. Where the parent listed company, has acquired the equity shares of the subsidiary, by paying consideration in cash or in kind in the past to any of the shareholders of the subsidiary who may be Promoter*
…and if that subsidiary is being merged with the parent listed company under the Scheme.
The Scheme shall be acted upon only if the votes cast by the public shareholders in favor of the proposal are more than the number of votes cast by the public shareholders against it. *Includes Promoter Group, Related Parties of Promoter / Promoter Group, Associates of Promoter / Promoter Group, Subsidiary/(s) of Promoter / Promoter Group.


Bombay HC: Godrej Ind. Case
‘Any SEBI circulars or guidelines or notifications that make electronic voting or postal ballot the exclusive method of voting on such schemes are clearly unlawful and contrary to the intent of Sections 230/232 of the 2013 Act and of Sections 391/394 of the 1956 Act’

Asher: I have a slightly different view to say that let’s look at the standing committee which Sharad referred to- 64th report- where the government view says if I may read out, postal ballot includes electronic voting, experience of several decades have shown most of the shareholders residing in far-flung areas are unable to attain annual general or extra-ordinary general meeting.

Doshi: Nobody is denying that there is an advantage to add on to the physical meeting- the ability for shareholders to vote from wherever they are either through postal ballot or e-voting. I think the core question even this judgment throws up is shouldn’t the two be additionalities? It cannot be that let’s do away with the meeting, let’s only do postal ballot and e-voting – that’s the question Justice Patel has ruled on as well. He says no, you cannot do that. He has found a technicality in orders to say that look nowhere in Section 110 have they referred to court-convened meetings. He has made that distinction and he said they refer to company meetings, not court-convened meetings and hence Section 110 cannot apply in Godrej’s case. I am asking you to focus on the core issue here. Can you get away with not doing a court-convened meeting or even a shareholder meeting and just rely on postal ballot and e-voting.  

POSTAL BALLOT vs MEETING
Bombay HC: Godrej Ind. Case
‘Section 110 speaks of meetings called by the company. Meetings for approval of Schemes under sections 391/394 of the 1956 Act and Sections 230/232 of the 2013 are not “called” by the Company. They are ordered by the Court. These are Court-convened meetings.’

POSTAL BALLOT vs MEETING
Bombay HC: Godrej Ind. Case
‘All provisions for compulsory voting by postal ballot and by electronic voting to the exclusion of an actual meeting cannot and do not apply to court-convened meetings. At such meetings, provision must be made for postal ballots and electronic voting, in addition to an actual meeting. Electronic voting must also be made available at the venue of the meeting.’

Asher: To my mind absolutely yes.

Doshi: Even after this decision?

Asher: Even after this judgment because this judgment, with due respect, is not binding on any other applications which will come up before the Bombay High Court. The doctrine – what we call as a doctrine of stare decisis does not apply in this case. There is a Supreme Court judgment of 1979 which states that the decision of the single judge is not binding on the same court as well. Therefore, surely one can make out a case before the same High Court and get postal ballot mechanism for the purpose of an amalgamation of 391 to 394 applications.

POSTAL BALLOT vs MEETING
Companies Act, 1956
Section 391. Power To Compromise Or Make Arrangements  
(1) Where a compromise or arrangement is proposed -
the Tribunal may, on the application of the company or of any creditor or member of the company…order a meeting of the creditors…or of the members…to be called, held and conducted in such manner as the Tribunal directs.

Doshi: You agree with that?

Abhyankar: That is going to be very interesting because one of the things which Justice Patel also refers to is the ability to not just discuss but amend the resolution and as back as in ’ 97 they are saying that it is not merely the technicality or the modus which is really a bar but managements often propose amendments after hearing the shareholders and those are put and I said this even when we were discussing e-voting that the way rules are structured today, both postal ballot and e-voting, eliminate any debate completely.

Bombay HC: Godrej Ind. Case
‘If we were to restrict ourselves to a postal ballot, no shareholder or any director could ever suggest any amendment’

Doshi: At the very best there should be additionalities for those shareholders who cannot physically make it to the meeting, there cannot be a replacement of the meeting – that’s the position that the decision has taken by Justice Patel and fully agree with that whether it is a court-convened meeting as was the case here or a shareholder meeting?

Abhyankar: Yes.

Asher: I have a different view even for the amendment or the resolution- if you see the 1913 law, if you see the 1956 Act or if you see the 2013 law – if there was possibility of amending a particular motion, the law would have permitted, it would have provided in so many words. If I am doing something by postal ballot, it is only the shareholders who are attending the meeting who will have an opportunity to amend the motion.

Doshi: That is right

Asher: But then why the remaining shareholders should be deprived. If I am doing a…(Interrupted by Anchor)

Doshi: They are choosing to deprive themselves; they are not being deprived by the company. They are saying I cannot make it to your meeting, I am going to at least exercise my vote if not exercise my right to debate or right to amend. You do not want to deprive them of at least the vote?

Asher: What I am saying is that the law does not contemplate any amendment otherwise they would have stated in so many words.

Doshi: But the practice has been over the years that management explains the resolution, shareholder may debate it, may raise points and there could have been instances where managements have altered their proposal. He goes on to say as much in his decision that it is a draft scheme or a draft proposal or a draft resolution.

Asher: I would say sparingly management has amended the resolution. To my mind they have not been tested whether the amendment to a resolution is valid in law. I read it again today, the 56 law, the 1913 law, the 2013 law – nowhere it says…(Interrupted by Anchor)

Doshi: So you are saying he is arguing wrongly in allowing or insisting that shareholders must be allowed to debate and even amend.. …(Interrupted by Guest)

Asher: No, only the amendment.

Doshi: I get that because you are saying the amendment in itself might not be lawful.

Asher: Yes.

Doshi: Let us examine the impact this decision will have. You have already explained that you do not expect this to be binding and that a brave company may very well go back to the Bombay high court… (Interrupted by Anchor)

Asher: Not a brave company; a company which will be able to make out a case to the court and say that there is no need for me to convene a meeting otherwise what was the need of 192A. You see what are the items which are there in 192A – amendment of object clause, amendment of articles, selling of substantial part of an undertaking, buyback of shares, giving loans and making investments – these are all important vital items and yet the Parliament and the law has permitted to be done through postal ballots and not at a meeting. If they are important items then obviously you do through a postal ballot.

Doshi: I am just trying to get the impact on companies, what should at least companies located in Maharashtra which is the jurisdiction of Bombay High Court, do now if they want to attempt to dispense with the shareholder meeting- should they go to the Bombay high court or since Justice Patel’s views are very clearly eloquently put out in that decision, they should not; at least not in the case of court-convened meetings.

Abhyankar: I think given the publicity this particular judgment has got almost India wide, any judge who would like to give such a dispensation will have to at least deal with the logic of shareholder democracy, the kind of rights there are of shareholders that Justice Patel has talked about – that they cannot be abrogated, so some judge has to apply judicial mind to say that postal ballot process or e-voting by itself is so fair that I am happy to abrogate and nullify those rights of shareholders.

POSTAL BALLOT vs MEETING
Bombay HC: Godrej Ind. Case
‘…the shareholder has an inalienable right to ask questions, seek clarifications and receive responses before he decides which way he will vote…The right to persuade and the right to be persuaded are, as I see it, of vital importance. In an effort for greater inclusiveness, these rights cannot be altogether defenestrated. To say, therefore, that no meeting is required and that the shareholder must cast his vote only on the basis of the information that has been send to him by post or email seems to me to be completely contrary to the legislative intent and spirit to the express terms of the SEBI circular and amended Listing Agreement’s Clauses 35B and 49.’

Asher: And also into the discussion which the company court rules have given as also the law has given that may direct a convene of a meeting…(Interrupted by Anchor)

Abhyankar: The fact remains that discretion will have to be judiciously exercised.

Doshi: He has judiciously exercised his discretion and said no, not just to Godrej which anyways withdrew its petition and has decided to hold a shareholder meeting now but he said no to any other company coming to his court, right?

Abhyankar: If we look at the entire literature whether it is coming from Kumar Mangalam Birla Committee whether it is the 64th working committee- they have all said that we need larger shareholder participation and it cannot be restricted just putting a vote into the record of the company. The vote is not merely recording something just for the sake of formality. I think a physical meeting has a purpose.

Doshi: So you are saying that smart companies will therefore do those physical meetings and not attempt to go beyond what Justice Patel has laid out?

Abhyankar: Correct.

Asher: Why? You would make an attempt to make out a case before the court to say that dispense with the physical meeting; allow me to do postal ballot.

Doshi: Explain me on what grounds a company can, after this decision, say I still want to dispense with a court-convened meeting?

Asher: First is reading of 110, second, the judgments of the Delhi High Court in Bharti Airtel and, ITC judgment of the Calcutta High Court. Plus there are reasons as to how would you distinguish this particular judgment by saying that otherwise 192A will have no effect. Important items which are to be dealt with – the Parliament and the law has laid down.

Abhyankar: There is one observation and I do not think we should read too much into it but that stems from the perception of whether a meeting is a mere formality and just look at the observation – what Mr. Mehta suggests seems to be to stem from fear or even an aberrance of dialogue or discuss. Is that a reason why we will seek discretion, is that the perception of managements that holding meetings or holding postal ballot is a mere formality. Are they fearful of dialogue, are they avoiding meeting shareholders face to face.

Asher: There are documents which are kept for the inspection of the shareholders and therefore the shareholders have the right to visit the management, to visit the company.

Doshi: And some may argue that postal ballot is just time efficient instead of having to do a meeting, wider way of reaching out to all your shareholders as opposed to a meeting. I don’t know where the mean like in this because the judge is also referred to arriving at some sort of mean which includes the inclusiveness of the postal ballots and e-voting but does not dispense with physical meeting. Lets not debate the decision anymore; I just want to understand the impact. There is one more thing the he has said which is to allow for or insist on e-voting in physical meeting as well, I thought that was interesting. There is no provision in any of the companies Act - old or new - which speaks of e-voting at a meeting. Will companies have to do this here on from based on this?

Bombay HC: Godrej Ind. Case
‘There is no reason why members attending a meeting should not be allowed to use a bank of computers to digitally cast their votes just as they might do if they were voting from a remote location’

Abhyankar: So to the extent his judgment is binding it may have to be done.

Asher: It is not at all binding on any other company which takes out the judges summons for dispensation of meeting or for getting approval of the shareholders through postal ballot because it depends on facts and circumstances of each case and every single court has so many company summons for judgment by way of company application for dispensing of the meeting. Just because in one particular case the court has ordered a meeting or has ordered not to do with postal ballot or to do with both that doesn’t mean every company has to follow that, absolutely no.   

Abhyankar: Just a different point on that- now that Justice Patel has also recommended constitution of a superior bench to look into these matters. I think it would be difficult for any judge whether in Mumbai, whether in Maharashtra or in any other state to jump the gun and say that I would in given set of facts and circumstances, I want to exercise a discretion while there is a bench being constituted to exactly look at all the grey areas and frame some guidelines. I think all the courts will bear that patience for the guidelines to come up.  

Doshi: So, at least for the short-term, many companies will not find it easy to get a court convened shareholder meeting dispensed with because many courts will be looking at this and judges will be looking at this and saying look unless we have very good reasons to go away from this judgment we should not deviate. That’s your point?

Abhyankar: Probably that would valid more for listed companies and unlisted.

Doshi: I am glad that you brought it up because Justice Patel in his comment had said this applies to the universe of companies. He says very clearly that prima-facie it appears that the provisions of Section 110 of the 2013 Act cannot and do not extend to any scheme matters. This is true of all companies, whether listed or not. So even private companies will face the same hurdle.

Bombay HC: Godrej Ind. Case
‘Prima-facie it appears that the provisions of Section 110 of the 2013 Act cannot and do not extend to any scheme matters. This is true of all companies, whether listed or not’

Abhyankar: So again it will depend on what kind of percentage of shareholders you can get consent of prior to the application.

Doshi: So, if you are private company and you can get the NOCs and advance it to the court.

Abhyankar: Exactly, whereas in the listed companies because there are significant large public shareholders, getting NOCs from many of them would be very difficult.

Doshi: The one thing that both of you will agree on though since we are at the end of this are the very comments that he has made on the haphazard manner in which the Ministry of Corporate Affairs has gone about notifying the Rules to Companies Act, 2013. And he has also held that till it is not gazetted, it is not notified or cannot be notified and hence it does not apply and dismissed all bunch of rules at that point of time because they have not been gazetted.

POSTAL BALLOT vs MEETING
Bombay HC: Godrej Ind. Case
‘I do not see how any such rules can be made effective on this basis where a ministry simply puts up some scanned document under the signature of one of its officers but sans any publication in the official gazette. That publication is not an idle formality. It has a well-established legal purpose. That purpose is not and cannot be achieved in this ad-hoc manner. Therefore, till such time as these rules are gazetted, or there is some provision made for the dispensation of official gazette notification, none of the rules in the Ministry of Corporate Affairs PDF document that are not yet gazetted can be said to be in force’

Abhyankar: Because of this ruling and which is an absolutely fine and correct principle of law we have a legislative void for the period between April 1 and the day on which the rules will eventually get gazetted.

Doshi: Most of them now have been over the last week or so.

Abhyankar: Not have been but the period between April 1 and say May 7-8, there is a legislative void that the Sections have been implemented, have been notified but you do not have the Rules which are binding.

Doshi: Fair enough. So, if at all you were not in compliance in that one month you have a valid legal excuse for not being so. Last words Sanjay, what you think the outcome will be thanks to this Justice Patel decision?

Asher: There are a lot more controversies on the postal ballot and the new question which will come up is if I have followed postal ballot whether somebody can take the ratio here and say even though you have done it through postal ballot, convene a meeting for items which are mentioned compulsory for postal ballot as well.

Doshi: But, wouldn’t the technicality that justice Patel has used here than apply- he has said that Section 110 allows you to do away with the company meeting not a court convened meeting. So someone could very well use that to argue against the case that you are making.

Asher: It could but the principles still remains because all across the judgment he has talked about shareholder democracy and to be heard, etc and so therefore somebody can argue to say that look even if something is done under postal ballot or e-voting you better hold the meeting.

Bombay HC: Godrej Ind. Case
‘We strive today to greater transparency; that means that more should be given the opportunity to speak and to exercise their rights as shareholders’

Bombay HC: Godrej Ind. Case
‘What corporate governance demands is the government of the tongue, not the tyranny of a finger pressing a button’

Doshi: So, what is the solution to this? A bench that looks at all of these issues clearly?

Asher: Yes.

 
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